How does raising interest rates help inflation? What the new Bank of England rate means for UK inflation
Inews.Co.UkNov 03, 2022
While announcing another interest rate hike from 2.25% to 3% on Thursday, the Bank of England (BOE) warned that the UK faces its worst recession since records began in the 1920s.
Treasury head Jeremy Hunt now faces calls to explain how homeowners should deal with the 0.75% increase, the highest single-rate increase since 1979, amid reported concerns that their mortgage payments could breach more than 40% of their gross salary.
Previous rate hikes haven’t improved the financial environment for buyers and savers, so the BOE’s claim that it’s raising rates to improve the situation rings hollow. With the price of goods outpacing peoples' pensions and savings accounts — and now these rate hikes making it nearly impossible to pay off home loans — it appears the BOE is intent on following bad policy with something worse.
Rate hikes by the central bank in the UK, as in the US, are necessary and are slowly working to cool the economy. Prospective homebuyers may have to wait to buy a house in the short term, but it’s more important right now to tackle inflation with these rate raises.